NEW YORK -- Jim Cramer, financial guru and host of CNBC’s “Mad Money,” believes executives are embracing the concept of the spinoff, and he looks at convenience-store chain CST Brands Inc. as an example.
Cramer decided to focus on the value of CST Brands after reading research from Goldman Sachs’ chief U.S. equity strategist, David Kostin, who found that spinoffs tend to outperform the averages.
Last year there were 38 spinoffs, and dozens more are in the pipeline for 2016, Cramer said.
“I am a huge backer of this breakup strategy, in part because the stock market prefers smaller, easy-to-understand, pure-play type companies over big, complicated conglomerates,” he said in a recent “Mad Money” segment.
San Antonio-based Valero Energy Corp. spun off convenience-store retailer CST Brands Inc. in 2013 so that it could focus on its core refinery business, while CST could focus on the retail side.
CST Brands was on a roll at first, said Cramer. The company began making small, tuck-in acquisitions to expand its footprint, and the stock caught fire, he said.
Declining oil prices, however, were a mixed blessing for CST.
At the beginning of 2016, CST was then slammed with the rest of the market.
Company management has announced it was trying to figure out a way to monetize its real-estate holdings. And in early March, management announced it was pursuing strategic alternatives to enhance shareholder value.
Both the monetization of real estate and the strategic review could be positive catalysts for CST, and Cramer doesn’t think it pays to wait around for the stock to turn around. At that point it will be obvious to everyone.
“My view? With CST Brands trading at just 17 times next year’s earnings estimates, the stock is not exactly what you would call cheap, but I am willing to give it my blessing for speculation,” Cramer said.
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